Legal Definitions - noncumulative preferred stock

Noncumulative preferred stock is a type of preferred stock that does not have to be paid dividends that are in arrears. Once a periodic dividend is omitted, it will not be paid. This is different from cumulative preferred stock, which must receive dividends in full before common shareholders may receive any dividend.

For example, if a company issues noncumulative preferred stock with a dividend of $1 per share and fails to pay the dividend in a particular year, the shareholders of this stock will not receive the dividend in the future. However, if the company had issued cumulative preferred stock, the unpaid dividend would carry over to the next year or period and must be paid before the common shareholders receive any payment.